Crypto News Bites 2022/11/16
Circle adds support for Apple Pay / Uniswap becomes 2nd largest exchange for ETHUSD pair eclipsing Coinbase / Concerns over Silvergate's FTX exposure
Top News Summaries
Circle, the issuer of USDC stablecoin, adds support for Apple Pay. Huge move for adoption, as crypto-native businesses (e.g. NFT marketplaces, gaming, exchanges, wallets etc) that accept USDC can enable customers to check out and settle with Apple Pay. Now if only crypto winter would end…
Cefi to Defi picking up steam. 89% spike in defi volume last 7 days. Uniswap DEX has 2nd most volume across all exchanges for the ETH/stablecoin pair, eclipsing Coinbase and settling behind Binance.
Crypto friendly bank Silvergate (SI) down 17%, rising star short-seller claims SI more deeply involved, potential bank run.
Centralized exchange AAX needs to raise capital, previously halted withdrawals. Lending firm SALT and crypto exchange Liquid halts withdrawals. More data points supporting my decision to pull crypto off cefi.
Yuga Labs donates CryptoPunk to Miami museum, kick starting initiative. Could cement Punks in art history, or at least greater adoption / appreciation of NFTs
Finally seeing FTX bankruptcy not completely swamp the news. More details, news and analysis below, let’s go!
Market Overview
Crypto markets saw a mild recovery inline with the continued uptrend in equities. Starting to see a small pullback in the cefi to defi trend, with coins like DYDX -7%, TWT -14%. Trading opportunities should hopefully be less impacted by general/macro narratives and more focused on individual merits.
Some concerns on Twitter on potentially massive BTC selling is that US listed MicroStrategy (MSTR), one of the largest BTC holders, would get a margin call if BTC hits $13,500, as their BTC must hold $410m value against their $205m loan. Do note that MicroStrategy has a lot of BTC uncollateralized, which means the margin call should actually be at $3,562. What might be a concern is whether they have enough capital to pay the coupon on their $500m 2028 bond that pays 6.125% coupon, or if they need to sell some BTC to raise the cash.
Shares in crypto friendly bank Silvergate (SI) drops 17% despite other crypto names like Coinbase (COIN) rising 4%. Last Friday Silvergate said FTX’s deposits were less than 10% of the $11.9b total deposits from all digital asset customers. Marc Cohodes, one of the earlier researchers who doubted FTX and gaining more fame, said he’s shorting SI as he thinks the bank is more deeply involved than assumed and potentially facing a bank run.
Adoption
Circle, the issuer of USDC stablecoin, adds support for Apple Pay. This is a huge move for retail adoption, as crypto-native businesses (e.g. NFT marketplaces, gaming, defi exchanges, wallets etc) that accept USDC can enable customers to check out with Apple Pay and then use Face ID or Touch ID to complete the transaction from their iphone/ipad. I’ve long hoped for a seamless one-click method for the average person to use crypto, as despite many improvements over the years, there are still multiple steps involved leading to a poor user experience (UX). We jump through all these hoops because we’re used to it as it was the only way before. But not anymore. When this crypto winter finally ends, which could take much longer due to the bankruptcy of what was once the 2nd largest crypto exchange FTX, I expect significant adoption due to the much improved UX.
Another type of adoption is corporate adoption. Sony had a patent published this week titled Tracking Unique In-Game Digital Assets Using Tokens on a Distributed Ledger. News outlets suggest that this involves NFTs and blockchain technology. That said, traditional video gamers are still hostile to NFTs & cryptocurrencies due to aggressive monetization strategies by game companies, which led to Sony saying their Playstation Stars Digital Collectibles are NOT NFTs. In my view, we are just waiting for the right game to transition the over 3 billion active video gamers worldwide into blockchain games. Instead of unsustainable play-to-earn model, perhaps the implementation of a free-to-own model such as Digi Daigaku will create adoption? Full disclosure I own some of these NFTs, but the model of free-to-own in my view could lead to an explosion of growth the same way free-to-play did for mobile phone games.
Yet another adoption is government adoption of blockchain technology. NY Fed and leading banks kick off a 12 week pilot of a distributed ledger technology (DLT) network of digital liabilities. The proof-of-concept uses simulated data. Perhaps as some have guessed the Fed will use USDC as their defacto central bank digital currency (CBDC).
Follow the money
This could be under adoption but hey, follow the money. Technavio predicts that metaverse dedicated to entertainment (virtual concerts, games, movies) will grow by $29b from 2021 to 2026 for a compound annual growth rate (CAGR) of 8.55%, expecting 33% of the growth to originate from North America.
Speaking of games, Web3 gaming monetization platform PlayEmber raised $2.3m pre-seed from investors including Shima, Big Brain, Warburg Serres, Huobi.
NFT fraud detection startup Yakoa raises $4.8m seed from investors including Brevan Howard, Volt, Uniswap.
NFTs
Yuga Labs, owner of bluechip NFT collection CryptoPunks (Punks) which the cheapest price (floor price) is currently ~66.5 ETH or $84k, will donate Punk 305 to the Institute of Contemporary Art (ICA) Miami, in an initiative to donate Punks to museums and galleries around the world. ICA Miami was the first major art museum to acquire a CryptoPunk last year. This move may further cement Punks into art history, possibly bringing greater adoption and more appreciation to NFTs.
Earlier I wrote about bluechip NFT collection Bored Ape Yacht Club (Apes) floor price dropping below CryptoPunks. A thread on supposedly how a large seller is pressuring prices in order to trigger liquidations on NFT lending platforms like BendDAO, in order to buy cheap Apes. Current floor is ~54 ETH or $68k.
Also filed under adoption, prior to the FIFA World Cup starting on 20 Nov, football superstar Cristiano Ronaldo will ‘kick off ‘ his CR7 NFT collection on 18 Nov exclusively on Binance. As an aside, might see some interesting trading opportunities for Chiliz (CHZ) ahead of and during the FIFA World Cup.
Decentralized Finance (defi)
In the wake of the troubles in centralized finance such as the exchanges where the opaqueness makes them a black box, traders & investors are now appreciating the advantages of defi as mentioned before. Last 7 days on Ethereum saw a 89% spike in trading volumes to $28b on decentralized exchanges (DEXs). Even after the initial spike, as per the below screenshots the Uniswap DEX (UNI) has 2nd most volume across all exchanges for the ETH/stablecoin pair, eclipsing Coinbase and settling behind Binance.
Centralized Finance (cefi)
Skeletons coming out of the closets now. Gate.io was hacked back in 2018 for $230m and this was kept hidden until now. I would get any coins off centralized exchanges and learn to self-custody them. Crypto exchange Binance is pushing for Trust Wallet, while MetaMask is the leading crypto wallet (guide here).
After halting withdrawals for ‘system upgrades’, Crypto exchange AAX needs to raise new capital in order to resume all services? In other news, Crypto lender SALT halts withdrawals. Crypto exchange Liquid also suspends withdrawals. More data points supporting my decision to pull crypto off cefi. Once the dust has settled, I can always put my crypto back in provided that cefi platforms have done a good job in restoring trust by allowing users to verify their deposits are safe.
As mentioned earlier in the week, the Binance perpetual futures for AXS more than doubled in 2 minutes. a user saw unauthorized access and trading in their account, which turns out to be an attack on algorithmic trading bots Skyrex, who provides automates trading strategies for their users on exchanges like Binance.
FTX
The FTX hacker who drained $600m has started moving the funds again. Security firm Certik alleges the hacker is still draining FTX wallets, but crypto investigator ZachXBT says it is just spoofing, which means the ‘transfer from’ wallet address can be faked at first glance, and opening the transaction will show ‘sent from’ wallet address. Makes you wonder about the security firms…
The Solana blockchain (SOL) was heavily marketed and promoted by FTX, and many question how they will fare without their prominent backer with the SOL price dropping almost 70% in 4 days compared to BTC dropping 27%. The Solana Foundation, which supports the blockchain, held $1m cash, 3.24m shares of FTX Trading Ltd, 3.43m FTT tokens and 135m SRM tokens all stuck on the exchange. FTX and Alameda had 58m SOL tokens, which many in the industry believe have sold most of it when trying to avoid bankruptcy. In my view the lifeblood of a blockchain are its users, and it remains to be seen whether Solana can regain the loss of trust from the FTX bankruptcy.
SBF, founder of FTX, tried to raise capital over the weekend to make users whole, but WSJ reported that he has been unsuccessful so far.
A bit of mud slinging now. Su Zhu, fugitive & co-founder of liquidated hedge fund Three Arrows Capital, tweets his positions were leaked by FTX. Playing the victim card and diverting attention away from his highly leveraged bets that had no risk management.
Speaking of mud slinging, outside of being the 2nd largest political donor to the US Democratic party, media now linking potential ties to SEC Chairman Gensler as well as US Senator Warren. Thousands petition for a congressional investigation of the alleged Gensler ties. Concerns now that SBF might not even get jail time.
Regulation
The EU could ban cryptocurrencies designed to protect the privacy of the user and their transactions (privacy coins) due to Anti-Money Laundering (AML) rules. This would prevent banks and crypto providers from dealing with coins like XMR, ZEC, SCRT etc
Dark side of crypto
Earlier in the week, defi DeFiAI hacked and $4m was drained from their smart contract. What is interesting is this is despite partnering with cybersecurity company Hacken. Makes you wonder about security firms… as mentioned in the FTX section above. Regardless, in my view I wouldn’t put all my eggs in one basket on any one defi protocol.
Ongoing Trends
Bankruptcy of 2nd largest crypto exchange FTX and contagion risks
Decentralization no longer just a tagline. Centralized to decentralized movement for remaining crypto traders & investors
Global crypto adoption and increased regulation, launches of Centralized Bank Digital Currencies.
Bitcoin mining industry consolidation as margin squeezed on low BTC prices and higher costs (electricity, funding, hashrate difficulty etc)
Tokens Mentioned Today
BTC ETH USDC XMR ZEC SCRT XRP DYDX TWT UNI CHZ
Ape ape ape